Economy Will Sparkle, Many Execs Forecast

May 02, 1999|By Sallie L. Gaines, Tribune Staff Writer.

If chief executives are supposed to be cynical and pessimistic by nature, somebody forgot to spread the word around Chicago. When it comes to the economic outlook, chief executive officers here are unabashedly sunny.

"The economic outlook is strong," said William G. Foote, chairman and chief executive of USG Corp. He rattled off a list of specifics that he believes signal a strong economy into 2000: "There's breadth in demand; consumer confidence is high; interest rates, although turning up slightly, are still very attractive. Those forces all combine to result in good levels of economic activity."

That outlook is shared by a majority of the leaders of this region's largest companies. By one measure, optimism is even running higher than a year ago.

A poll of Chicago-area CEOs, conducted for the Tribune by Market Shares Corp. of Mt. Prospect, shows that 94 percent of the chief executives who responded believe the Midwest economy will be as good or better this year than in 1998.

However, more business leaders are expecting a flat economy rather than a continued upswing. The survey showed that 62 percent of the CEOs expect the economy to be the same this year, compared with 46 percent who felt that way a year ago. And 32 percent said they expect the economy to be better, compared with 62 percent who said that a year ago.

But only 7 percent said they expect the Midwest economy to be worse, compared with 6 percent last year.

The tempered predictions for 1999 are being challenged by an overall market that doesn't seem to know the meaning of "downturn," however.

"Right now the economy is better than I thought, and right now I think we're going to do better than I thought going into the year," said Raymond A. Jean, chairman and chief executive of Varlen Corp., a Naperville-based manufacturer of automotive components and petroleum analyzers. "It's stronger than we had expected at this time. We really ended the year with just great momentum in our transportation markets, and the view is still bright."

The Tribune conducted its survey by faxing questionnaires to chief executive officers of the 100 largest public companies in the Chicago area. Sixty-nine CEOs answered.

The vast majority of CEOs--85 percent--expect their companies to turn in a stronger financial performance this year than last; a year ago, 83 percent said that. Fifteen percent expect their companies to do the same as last year, and none expect to do worse.

A Bain & Co. survey of Fortune 500 chief executives showed that optimism is the order of the day. But leaders of Midwestern companies tended to be more optimistic than the norm, said Mark Horwitch, a Bain partner in Chicago.

Bain asked CEOs how they expected their own companies to stack up against their competitors. "Everybody always said they were going to beat everyone else," Horwitch said. "Obviously that is not always going to turn out that way."

Horwitch suggested that many Midwest companies have less international exposure than businesses on the East and West Coasts. "Our hypothesis was that most of these Midwest companies felt they were more insulated from international markets," he said, but cautioned that the sample size of the study wasn't large enough to draw firm conclusions.

Some Chicago-area business leaders did admit to some puzzlement over the continued strong economy.

"I did expect that we should have greater upward inflationary pressure on salaries a lot sooner than we have experienced so far," said Al C. Zucaro, chairman and chief executive of Old Republic International Corp., a Chicago insurance company. "It's been a real surprise that there has not been, particularly given the fact that we have a very low unemployment number."

The strong stock market also is a bit of a surprise, because prices are out of sync with earnings, Zucaro added.

"I just don't see how Corporate America can produce the kinds of earnings that are expected by the stock market, as is evidenced by the high p/e (price-to-earnings) multiples that are out there."

Rational or not, the stock market has been "a great lubricant for the economy," Jean said. "It has added wealth, and we're seeing consumers spend that."

USG, the world's top producer of gypsum wallboard, certainly has benefited from that consumer spending. Foote says his optimism stems from demographics.

A quarter of all the houses in the U.S. were built before World War II, and another 25 percent were built in the 1950s and '60s, he said. No surprise, remodeling is growing at a rapid clip.

"The demand for our products is solid, and as long as there is liquidity in the economy and the consumer is confident, I think it will continue," Foote said.

But for how long?

The simple answer is: Nobody knows, or is willing to predict on the record. But nobody expects an endless economic expansion, either.